We are witnessing a massive start-up interest in Platform business models. There are generally two types of platforms- (1) innovation platforms like Apple iOS, Google Android, or Amazon web services that allow a third party to build and add complimentary apps, and (2) transaction platforms that allow the exchange of goods, services, information among the participants. Almost 70% of all Unicorns globally operate on a platform business model.
The last two decades saw a spectacular rise of platform economy companies like Google, Apple, Amazon, Alibaba, Tencent, and Meta, hitting trillion-dollar valuations as compared to the conventional marquee brands that are yet to reach even close to this mark.
These traditional biggies have been in the business for about 100 years, with almost twenty times the workforce of their rivals in a digital business model. While the successes are mostly well known, the fact is that an HBR study of 250 platform economy companies in 2019 revealed that 75% of platform businesses fail, and the study brought out the reasons for such failures.
The study categorized the most common mistakes into four categories: (1) mispricing on one side of the market, (2) failure to develop trust with users and partners, (3) prematurely dismissing the competition, and (4) entering too late. Against this backdrop, the authors studied a few successful platform businesses in India and tried to decode their success formula.
Swiggy, a well-known company for its food delivery service, started its operations in 2014, although its parent firm, Bundl, was primarily focused on e-commerce logistics. The company began its operations when the food delivery sector was in disarray as several promising start-ups, such as Foodpanda, TinyOwl, and Ola Café faced many problems.
Other platform companies took over some of these start-ups, and some closed down. In early 2021, Swiggy rebranded its grocery delivery service as Instamart and expanded its footprint. A network of dark storefronts enabled this. In the same year, Swiggy also introduced another service, Swiggy Go (now Swiggy Genie), through which users may send anything from one location to another. From a revenue of US$135 million in FY2021, it increased its revenue to US$212 million in FY2022.
Established in 2008 with a robust business model, Zomato started its business with an app that includes food delivery services. However, it entered the grocery delivery section by acquiring blinkit by adding grocery delivery features to its existing consumer app in 2022. The company then acquired 12 start-ups globally.
Zomato invested partially in Grofers, an online delivery firm, in 2021. In 2022, Zomato acquired Blinkit in an all-stock deal. Among the top platforms for food service delivery, Zomato boasts a sizable and influential on-demand hyperlocal delivery network. It has a strong network of over a hundred thousand restaurants and delivery partners. From a revenue of INR 1994 crores in FY2021, it more than doubled its revenue to INR 4192 crores in FY2022.
Founded in 2014, Google and Reliance-backed Dunzo is an on-demand multi-delivery service app that delivers anything or almost everything to its users from one location to another.
The company entered into its instant grocery delivery services in 2021. In the second half of 2021, Dunzo launched a new service, Dunzo Daily, to deliver necessities and household goods in 19 minutes to expand into rapid commerce. In 2022, Reliance Retail bought a substantial stake in Dunzo and marked its entry into the platform business. From a revenue of INR 25.10 crores in FY2021, it doubled its revenue to INR 54.30 crores in FY2022.
India, Inc witnessed the emergence of many such successful platform companies. Unlike traditional companies, whose core competency lies in capital and human resources, platform companies’ core competency is the network effect they can enable, the data it holds, and the analytics they can run. While traditional companies linearly create value by optimizing their internal resources, platform companies create value in a triangular manner (the platform company, providers of shared resources, and its customers forming the three vertexes of the triangle) by orchestrating resources in its ecosystem, which is mostly not owned by the company. While a traditional company focuses on customer value, a platform company must create ecosystem value.
We all appreciate the importance of scale, scope, and speed for a company's growth. In traditional companies, these three factors often do not manifest together. But successful platform companies leverage the combinatorial effect of scale, scope, and speed, enabled through acquisition, spreading to a new geography, and leveraging the long tail of the market, as we have seen in the three examples of platform companies here.
The authors traced their success to four strong moderators influencing the success, namely (1) the consumption-driven Indian economy, (2) Demography and Psychography (multi-cultural multi-ethnic population, passionate youth population, increase in working population and hectic lifestyle), (3) Infrastructural dividend (digital adoption, start-up ecosystem, and investor-friendly business environment). (4) Cross Platform and long tails effects (food delivery to grocery delivery to delivering anything from anywhere to anywhere).
The Platform Business model is the favorite flavor for entrepreneurs today. There are no free size fits all, and we hope this article helps you create your successful platform business blueprint. Good luck!
Authors:
Dr. Mafruza Sultana, Assistant Professor, Bharathidasan Institute of Management, Tiruchirappalli
Prof. Pooja Gupta, Assistant Professor, Jagdish Sheth School of Management, Bengaluru
Dr. Asit K Barma, Director and Professor, Bharathidasan Institute of Management, Tiruchirappalli